ITE302x

ASSIGNMENT 2

1. Peter Gumbel, European editor for Fortune magazine, comments, “Kerviel is a stunning
example of a trader breaking the rules, but he’s by no means alone. One of the dirty little
secrets of trading floors around the world is that every so often, somebody is caught
concealing a position and is quickly—and quietly—dismissed…. [This] might be shocking for
people unfamiliar with the macho, high-risk, high-reward culture of most trading floors, but
consider this: the only way banks can tell who will turn into a good trader and who won’t is by
giving every youngster, it hires a chance to show his mettle. That means allowing even the
most junior traders to take aggressive positions. This leeway is supposed to be matched by
careful controls, but clearly they aren’t foolproof.”

In my opinion, both banks and youngster are playing risks game. Banks just care about profit,
that’s why they allow junior to do thing that they haven’t got enough experience to do. “If you
hire a bunch of youngsters and pay them big money to take risks, some will inevitably cut
corners”. This is an important fact by was ignored by banks managements. Youngsters should
stay in their position and do what they allowed to do, or do not exceed the benefit. As time
comes, their skill and experience will grow, and when everything is good, they can be promoted
to a higher position

2. What can there be an explanation for the failure of SocGen’s internal control system to detect
Kerviel’s transactions while Eurex detected many suspicious transactions?

The failure of SocGen is because they are so confident in its internal control system as well as
their successful history. They believe in its employee and they are not so serious with the
warning from Eurex